Gilliat’s Neave hints at structured funds launch
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Neave, who is head of Gilliat Financial Solutions, the newly launched structured product arm of Arbuthnot Banking Group and an ex-Keydata consultant, says structured products within a Ucits III wrapper or fund will be a big growth area for the structured products industry over the coming years.
He says the firm is actively working on ideas in this space but says a launch is unlikely to be this year.
He says: “It is certainly something we are looking at. I think there are payoffs that do lend themselves to the Ucits-III type wrapper or a fund as opposed to a tranche based product. I think it is going to be a big growth area for the structured products industry in the coming years.”
The use of these alternative wrappers for structured products, he says, will be driven by bigger institutions such as banks and life assurance companies.
He says: “They are likely to be using them as backers for various other products they have got and effectively offering a unit-linked fund of some kind. It fits into their business model better perhaps than tranche based structured products do where it is there for five years and you cannot play around with it unless you really have to.”
He says Ucits III wrappers are more expensive and would suit derivative based investment strategies rather than traditional payoffs such as reverse convertibles for income and autocallables or ‘kick-out’ plans.
Gilliat’s first structured product, which launched yesterday, forms part of a new income series offering investors three choices of income linked to either UK equities, commodities or property over a five year term.
Neave says the firm will continue to offer alternatives to the FTSE 100 and will encourage investors to look beyond the blue-chip index.
Gilliat’s next launch is on September 21 with another planned every two weeks thereafter for the next four to five months to ensure advisers have continuous access to an income product.
Neave says those who have historically invested for growth over the longer term are beginning to return to the market and the firm will launch more investment orientated products within the product range before the end of the year to meet these requirements.
For these, investment risk will be more conventional in terms of downside exposure and will suit investors who are bullish on a particular asset class.
Neave says: "We’ll be looking to create enhanced upside exposure but there will also be more downside attached. I do think this fits a growing area but perhaps a slightly different client base. The very conservative investors have not really gone away but the focus has been on income producing products which have been obvious because of the level of deposit rates.”
Gilliat is also planning a series of educational meetings for IFAs to help them work through problems and to provide a forum to discuss product ideas as well as wider subjects such as tax and the retail distribution review.
Neave is keen to boost the understanding of asset exposure risk and develop a way of risk ranking structures for investors. He says the recent fallout from Keydata has been a validation of the methodology of keeping client assets separate from corporate assets.
He says: “One of the things we are working on is how we can risk rank the structures as there doesn’t seem to be a transparent methodology for the retail market to look at the probability of losing money.
“Investors need to consider what the likelihood is of ending up with less money than they started with rather than how much money they can make. Nobody can tell a client what is right or wrong for them as they need to make their own judgment. All we can do is give them as much information about what can go wrong.”
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